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Universal Force the Issue

This should put some pressure on Apple: Universal Music will tomorrow launch a European digital discounting campaign. 1,500 back catalogue albums will have their digital trade prices slashed, resulting in reported retail price points of as little as GBP 5.49 in the UK and corresponding lower prices in other territories. This of course compares to Apple’s UK retail price of GBP 7.99 for all albums.

This is an aggressive move which forces the issue of variable pricing (which I’ve been a big advocate of for some time) and will probably push the other majors into similar action. All of which is a win win:

· Consumers get better value for money
· Consumers buy back catalogue without ‘shoving the long tail down their throat’ (David Card’s line, not mine)
· Consumers have more reason to buy complete albums rather than just single tracks

So the NET result should be decreased average prices of downloads right? Not necessarily. We’re currently in the process of building our European and US digital music models and as part of the extensive internal vetting processes we are still grappling with this question. Because variable pricing of course means price elasticity in both directions, with chart content retailing for more, not less. And of course music is a hits driven business, whatever the long tail advocates will tell you. So the net result could be that the average cost of a download track goes up. Unless of course initiatives like Universal’s are part of a broader strategy by labels to significantly incentivize digital stores to sell albums and play lists over single tracks. Then it might creep down. But only might…

We’ll be pulling forecast model levers and testing hypotheses for the next few weeks, by which time we should have an answer for you!